BP says KG output to revive from 2017

BP Plc said output from the Krishna Godavari (KG) basin will start reviving from 2017 onwards as a result of a three-point programme to arrest the decline is being implemented.

The British energy colossus is a 30% stakeholder in 19 blocks in the basin, where Reliance Industries with 60% stake is the operator.

The remaining 10% is held by Canadian exploration major Niko Resources.

In a presentation to investors on December 3, BP outlined three key initiatives which the company is committed to as part of the alliance in the KG basin.

“First, it is about managing the decline of the producing fields in Block KG-D6 through compression, workovers and infrastructure projects,” BP said.

The second step is to progress mid-term projects for developing already discovered resources of up to 3 trillion cubic feet and the third step is to pursue new resources through re-start of exploration activities which will be initiated by drilling three wells in 2013.

These steps, the company feels, will help to revive production from the field by 2017 after bottoming out in 2016.

“The more we learn, the more optimistic we are about significantly adding to our resources,” said the company in the presentation.

In fact, the company informed investors that it was optimistic that the price of gas from the KG basin will stand at a more realistic number post revision in April 2014.

Analysts said while upstream activity contributes hardly 4% to RIL’s operating profit, any positive development on KG basin will not ad materially to revenues but will be a sentimental boost for the stock which had been battered by the market due to flagging output from the promising gas field.

Reiterating their ‘buy’ call, analysts Niraj Mansingka and Kiran Tulasi from brokerage Edelweiss said while the efforts will give a sentimental boost, other positive triggers for the company would be outcome of the Rangarajan Committee on gas pricing and capex approvals post CAG audit.

BP on Monday said the government’s decision making has picked up pace and hence it sees the road ahead is positive.

The currently producing fields in the KG basin are the D1 and D3 fields which started production from Q1 of FY10 when it clocked 19 million metric standard cubic metres per day (mmscmd) against a target of 20 mmscmd.

While it was not able to meet its given target for each quarter since then, the company however was increasing its production consistently till Q4 of 2010 when it produced 60 mmscmd of gas which coincided with its target too for the same quarter. Since then the production slid consistently and has currently touched a low quarterly average of 30 mmscmd against a target of 89 mmscmd in the current quarter.